Talk about a bottomless pit. Last week, a stress test of the Irish banking system revealed that a further €24bn was required to recapitalise it. Taking previous capital injections into account, this means that the Irish government and European bail-out funds have now ploughed more than €70bn into the banks. That’s 45% of Ireland’s GDP.
Yet this latest move looks unlikely to draw a line under the crisis. For starters, officials have continually underestimated the black hole at the centre of the banking system, says David Enrich in The Wall Street Journal.
Last March, the previous government thought €12bn would cover bank losses. “Austerity will only further erode the value of the assets Irish banks have to lend against,” says James Saft on Reuters.com. “There is no guarantee” that this latest injection “will be where it ends”.
This is especially true given that “some of the macro-economic assumptions used in the stress tests were not exactly demanding”, says Jeremy Warner on Telegraph.co.uk.
Meanwhile, Irish banks are still being funded by the European Central Bank because they can’t access the money markets. In view of all this, fears that the banks – and hence the Irish state – will end up defaulting won’t dissipate in the immediate future.